Semi-quantitative risk analysis

ABSTRACT

A semi-quantitative analysis on the risk management process increases the possibility of performing an accurate risks comparison, making easier the identification of which risks shall be prioritized and shall receive the greatest mitigation efforts. Specifically, the semi-quantitative risk analysis enables an improved risks comparison for evaluating the consequences of each risk considering its impacts on the project&#39;s Net Present Value (NPV), reflecting the project&#39;s cash flow at different times. The use of such method makes the prioritization process more efficient, helping the managers and other personnel involved on the process to focus their efforts to the most critical risks for the project&#39;s success. In this sense, the risk management process becomes more efficient and better able to provide better support to the project decision makers.

FIELD OF THE INVENTION

The present invention relates generally to semi-quantitative riskanalysis for a risk management process. Specifically, the presentinvention provided an improved framework and tool for identifying,qualifying, comparing, and managing risks associated with a complexproject.

BACKGROUND OF THE INVENTION

Project risks are events or uncertain conditions that, if they occur,provoke a positive or negative effect in the project objectives. Each ofthe risks has a cause and, if it occurs, a consequence. Thus, a projectrisk analysis is typically performed at the onset of many projects topermit a team working on the project to identify and evaluate thepotential problems or risks that are associated with that project. Withprojects of ever increasing complexity and requirements, thecorresponding risk analysis becomes more complex and difficult.

Risk management consists of a systematic process for the identification,analysis and mitigation the project risks, aiming to minimize theprobabilities of occurrence and/or the severity of the consequences ofthe adverse events to the objectives of the project. Improvements inrisk management generally focus on the establishment of objectiveprocedures that aim at risks reduction, creation of synergy betweendifferent areas for most complex risks mitigation and creation of morerealistic vision of the main project deviations. In this way, theproject team can try to identify and prevent a project's undesiredevents, thereby minimizing the impact of negative events on the project

Typically, the risk analysis or assessment that is completed for anproject is dependent on the type of project. The risk analysis is oftencompleted using a spreadsheet or database program to simplify andprovide some standardization to the risk analysis process. Even inorganizations that have a standard written risk assessment procedure,different groups in the organization often make custom modifications tothe standard procedure to accommodate the particular type of projectworked on by the group. In other words, even where there is standardwritten risk assessment procedure, each group may have its owncustomized risk assessment procedure implemented.

Therefore, what is needed is a management application to implement arisk process for engineering that can be used by all users of anorganization or company to analyze, display, monitor and store the risksassessments for a project

SUMMARY OF THE INVENTION

The present invention relates to a semi-quantitative analysis on therisk management process. The semi-quantitative risk analysis is anevolution of the traditionally used qualitative risk analysis thatincreases the possibility of performing an accurate risks comparison,making easier the identification of which risks shall be prioritized andshall receive the greatest mitigation efforts. Specifically, thesemi-quantitative risk analysis enables an improved risks comparison forevaluating the consequences of each risk considering its impacts on theproject's Net Present Value (NPV), reflecting the project's cash flow atdifferent times. The use of such method makes the prioritization processmore efficient, helping the managers and other personnel involved on theprocess to focus their efforts to the most critical risks for theproject's success. In this sense, the risk management process becomesmore efficient and better able to provide better support to the projectdecision makers.

One embodiment of the present invention is directed to a method ofmanaging risks associated with a project and a computer program productimplementing the method. The method includes the steps of definingimpact criteria for risks of a project and identifying risks associatedwith the project. The method also includes storing risk information in adatabase, assessing risk using the defined impact criteria and preparingmitigation the risk. The method further includes storing mitigationinformation in the database. Finally, the method includes monitoring therisks associated with a project over the life of the project, updatingthe risk information and the mitigation information in the database andrepeating the steps of monitoring the risks and updating the riskinformation and the mitigation information in the database until each ofrisks is finished.

Another embodiment of the present invention is directed to a system foranalyzing and managing semi-quantitative risks associated with aproject. The system includes a server computer having a storage deviceand a processor. The system further includes a risk managementapplication to analyze and manage risks associated with a project. Therisk management application is stored in the storage device of theserver computer. The semi-quantitative risk management applicationincludes a database to store information relating to the project. Theapplication also includes software for providing and storing risk impactcriteria for all risks of the project, for providing risk information,and for providing mitigation information. The application furtherincludes software for assessing the risks based on the semi-quantitativerisk impact criteria and for categorizing the risks. The applicationfurther updates the risk information and the mitigation information inthe database based on collected information from field experiences.

One advantage of the present invention is that all groups in a companyor organization can access and use a common risk assessment userinterface, report format, and risk categories, which improves the riskassessment.

Another advantage of the present invention is that productivity isincreased by reducing the cycle time to create project risk assessments.Risk assessments can be generated and displayed automatically providinga significant manpower and cost savings.

Still another advantage of the present invention is that all projects'risks and mitigations are stored in a common database for easyretrieval, review and revision by appropriate users.

BRIEF DESCRIPTION OF THE DRAWINGS

A more complete understanding of the present invention and advantagesthereof may be acquired by referring to the following description takenin conjunction with the accompanying drawings, in which like referencenumbers indicate like features, and wherein:

FIGS. 1A-1B and 3 are flowcharts illustrating the steps in asemi-quantitative risk management process in accordance with embodimentsof the present invention;

FIG. 2 depicts a risk prioritization matrix produced from the riskmanagement process of FIGS. 1A-1B and 3 in accordance with embodimentsof the present invention;

FIGS. 4A-4D are graphs depicting project cash flows and net presentvalues in accordance with embodiments of the present invention;

FIG. 5 is a schematic diagram of system for implementing thesemi-quantitative risk management process of FIGS. 1A-1B and 3; and

FIG. 6 is an exemplary input screen for providing user-specified data tothe risk management process of FIG. 5.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS

Embodiments of the present invention provide a semi-quantitative riskanalysis for a risk management process. The methodology provided in thepresent invention improves on traditionally used qualitative riskanalysis by providing greater accuracy in risks comparison, therebyhelping to identify risks to be prioritized to receive the greatestmitigation efforts.

Specifically, the semi-quantitative risk analysis provided inembodiments of the present invention allows the risks comparison byevaluating the consequences of each risk considering its impacts on aproject's Net Present Value (NPV). The use of such method makes theprioritization process more efficient, helping the managers and otherpersonnel involved on the process to focus their efforts to the mostcritical risks for the project's success. In this sense, the riskmanagement process becomes more efficient being able to provide bettersupport to the project decision makers.

Referring now to FIG. 1A, a project risk management process 100 for themanagement of risks in a project in embodiments of the present inventiongenerally comprises the steps of risk identification 110, defining therisk impacts 120, development of the corresponding responses 130, andmonitoring and control 140 of project risks, the probabilistic issuesthat may generate negative impacts on the expected project result. Theexecution of this project risk management process 100, as illustrated inFIG. 1A, aims at minimizing the probability of any occurrences and theseverity of the consequences of events adverse to the projectobjectives. It should be appreciated that the methodology of the presentinvention may be adapted to also handle so-called project opportunities,probabilistic risks that generate positive impacts for the project.

Returning now to FIG. 1A, the identification of project risks in step110 comprises various techniques to identify and register the risks andto identify and register possible impacts. Thus, the identification ofproject risks in step 110 comprises a critical analysis the project,including the analysis of contracts governing, an analysis of previousprojects, discussion sessions with project team members and externalguests, and consultation and interviews with experts and specialists forsurveying all risk situations for the project. For example, theidentification of project risks in step 110 may include structuralizedmeetings in which a risks management team discusses and evaluates therisks of the project, including monthly indicators evaluation, responseplans status presentation, creation of the action plans, reevaluation ofprobabilities and risks impacts, new risks discussion, risks conclusion,discussion and pending actions control, etc.

Alternatively, embodiments of the present invention, described ingreater detail below, provide a computer system and tool to aid a userto identify project risks in step 110.

An example of a risk constantly present in the political and economicscenario that involves large projects, either in projects is the risk ofunforeseen changes in the tax legislation during the execution of aproject. Particularly in projects with a long duration, such as morethan five years, there is the possibility of changes in the taxlegislation, especially in countries with an unstable economy, whichconsists in a considerable risk for the expected project results.Changes like these can cause impacts mainly on the capital andoperational expenditures, to the extent that the variation of taxestends to fall over the investment and operational costs.Notwithstanding, they can also generate impacts on the time frame oreven on the expected revenue of a project, depending on the extension ofthe tax change and its impacts on the contractual structures in force.

Continuing with FIG. 1A, the defining of the risk impacts in step 120,explained in more detail, generally includes estimating theprobabilities and impact for each of the various identified risk, aswell as determining other effects of each risk. By combining theseparameters, the identified risks may be evaluated and prioritized. Inparticular, the present invention provides a novel framework forevaluating the various identified risks by estimating the monetaryimpact of the risks on the expected profitability of the project. Asdescribed in greater detail later in this application, embodiments ofthe present invention, provide a software-based tool to assist users inthe quantifying and qualifying the identified risks of project risks.

In embodiments of the present invention, the defining of the riskimpacts in step 120 may further optionally comprise the analysis of thecosts involved in the mitigation of each risk, aiming at performing aprobability study on the total project risk and on the expected resultfrom the investment made in the mitigation effort of each risk, so as toevaluate the chance of said effort of reaching its cost and time framegoals. In step 120, the severity of the impacts of the risk isevaluated, the occurrence probability of the risks is evaluated, and therisks are prioritized.

Continuing with FIG. 1A, the development of responses in step 130typically includes planning mitigation and contingency actions,establishing goals, and defining responsibility for risk and mitigatingactions. For example, the response may include designating a singleperson or group to be responsible for treating each risk, with thisperson(s) being in charge of planning the actions required for reducingthe probability of any occurrence and/or any potential risk impacts onthe project and also for the designation of those responsible for theexecution of these actions. Embodiments of the present invention mayfurther include a software tool that allows users to separately addresseach of the identified risks as needed to provide appropriate responses.

Finally, during the risk control step 140, the risks are monitored andthe response plans are followed-up and the results are evaluated tobring up to date each status task. At this stage, new risks may beidentified and the existing ones can be addressed or reprioritized byrecursively repeating step 110-140. Again, embodiments of the presentinvention provide a software tool to track the status of variousidentified risks as well as monitor the overall status of the project,and to provide these status conditions to users as needed to monitor therisks and to prompt investigation of newly emergent risks.

The achievement of the activities described in each stage ensures thatthe project has all its risks correctly mapped and controlled, however,as demonstrated below, details not observed in the qualitative analysisstage may lead to wrongful conclusions, possibly affecting thereliability of the final result and reducing the effectiveness of therisk management process.

Each of the steps in the project risk management process 100 is nowaddressed in greater detail. Returning to FIG. 1A, the qualitativeanalysis of step 120, a process executed right after the identificationof the risks in step 110, generally include estimating the probabilityof any occurrences and the possible impacts of risks in a simple manner,based on pre-defined scales so as to generate a list of priority projectrisks. These scales can be strictly qualitative and divided inuser-defined categories, for example, in “Very Low”, “Low”, “Moderate”,“High” and “Very High”, or the scales can be associated to numericalvalues, as exemplified in Tables 1-3 below:

TABLE 1 Probability of Occurrence 1 Very Low Probability (0-5%) 2 LowProbability (5%-10%) 3 Medium Probability (10%-20%) 4 High Probability(20%-50%) 5 Very High Probability (>50%)

TABLE 2 Schedule Impact 0 There is no Impact on Schedule 1 Up to 7 DaysDelay 2 7 to 15 Days Delay 3 15 to 30 Days Delay 4 30 to 60 Days Delay 5More Than 60 Days Delay

TABLE 3 Cost Impact 0 There is no Impact on Cost 1 Up to US$ 100K 2 US$100K to 200K 3 US$ 200K to 500K 4 US$ 500K to 1 Million 5 More Than US$1 Million

Turning now to FIG. 1B, the defining of the impacts to the identifiedrisks in step 120, corresponding to the exemplary Tables 1-3, generallyincludes the steps of determining the probability that the risk willoccur in step 121, determining scheduling impact of the risk in step122, and determining a cost impact of the risk in step 123. Optionallythe cost impacts of the risk from step 123 may be used to classify therisks, step 124. Then, the process of steps 121-124 may be repeated forother risks, step 126.

This general discussion the defining of the impacts to the identifiedrisks in step 120 assumes that the risks are statistically independentevents, such that each of the risks are separately evaluated; i.e., theoccurrence of one risk does not impact the other risks. It should bereadily apparent however, that various techniques may employed withstatistically related risks, such as risks having related incidences ofoccurrence (e.g., occurrence of a first risk impacts occurrence of asecond risk) or related impacts (e.g., occurrence of a first riskimpacts consequences of a second risk). Techniques to address therelated include, for example, calculating the covariance of the riskevents or alternatively, grouping together related risks and thencalculating the probabilities and impacts for each of the possiblecombination of the risks.

It should be further appreciated that the above discussion employssimplistic statistical models in calculating the probability or impactof the risks. Complex statistical models may be employed as well toassign various expected values and spreads for the impacts andprobabilities for the risks. Thus, in contrast to the static, predefinedoccurrence probabilities, scheduling impacts, and cost impacts, asprovided above in Tables 1-3, probabilistic models may be employed todetermine these effects, whereby the probability of the occurrence ofthe risk is a random event having defined statistical characteristics.For example, the expected value of the probability of the occurrence fora risk may be used for comparison to other risks. Similarly, theprobability of occurrence may otherwise be waited to reflect otherproject concerns

By adding the value of the risk cost impact from step 121 to its timeframe impact from step 122, one may obtain the severity of this risk,i.e., in order to obtain the sum of all impacts, one should obtain theactual correlation between the time frame impacts from step 122 and thecost impacts from step 123. For that, it may be necessary to calculate,for example, how much a one-month delay corresponds to an increase inthe operational cost of the project. This way, a schedule impact fromstep 122 may be assigned a cost impact in step 123. Accordingly, it ispossible to compare all risks correctly, which allows risks that haveonly a cost impact to be compared to risks that have a time frame impactonly and to risks that have a cost impact and a time frame impact.Calculation of the cost impact in step 123 is described in greaterdetail below.

After the cost impact is calculated in step 123, the total severity, orcost, of the risk may be classified in step 124, for example, with a5-point scale with values corresponding to “Very High”, “High”,“Medium”, “Low”, and “Very Low”.

Continuing with defining of the impact of the risk in step 120, the riskmay be classified in step 125 according to its probability of occurrencefrom step 121 and its severity (e.g., potential cost impact) from step123. For example, the severity score from step 124 may be used togetherwith an occurrences probability listing developed in step 121, such asdefined above in exemplary Table 1, to generate a risk prioritizationmatrix 200 illustrated in FIG. 2. In particular, the values estimatedfor the probability of an occurrence in step 121 and the severity of arisk in step 123, may be used to categorize the risk within a region ofthe prioritization matrix 200. Each of the regions in the prioritizationmatrix 200 may be defined according to user the criteria of severity 210(as defined in step 123 and/or step 124) and probability of occurrence220 as defined in step 121. The scale and particular values of costs C₁and C₂ for the severity 210 and probabilities P₁ and P₂ for theprobability of occurrence 220 may be defined as needed for the project.

The prioritization matrix 200 may be divided into various regions201-206 as needed to categorize the risks based upon the impact andprobability occurrences. In the exemplary prioritization matrix 200, forexample, the impacts 210 under cost C₁ are low, the impacts betweencosts C₁ and C₂ are medium, and impacts above cost C₂ are high.Likewise, in the depicted prioritization matrix 200, the probability ofoccurrence 220 under probability P₁ are low, the probabilities betweenprobability P₁ and P₂ are medium, and probabilities above probability P₂are high. For example, using the exemplary values from above Tables 1-3,

-   -   Region 201 represents risks having “Very High” or “High”        Probability and “Very High” or “High” Severity    -   Region 202 represents risks having “Very High” or “High”        Probability and “Medium” Severity or “Medium” Probability and        “Very High” or “High” Severity    -   Region 203 represents risks having “Medium” Probability and        “Medium” Severity    -   Region 204 represents risks having “Very Low” or “Low”        Probability and “Very High” or “High” Severity or “Very High” or        “High” Probability and “Very Low” or “Low” Severity”    -   Region 205 represents risks having “Medium” Probability and        “Very Low” or “Low” Severity or “Very Low” or “Low” Probability        and “Medium” Severity    -   Region 206 represents risks having “Very Low” or “Low”        Probability and “Very Low” or “Low” Severity

Certain selected regions of the prioritization matrix 200 presented inFIG. 2 may be designated as areas of interest, or prioritized risks 230.For example, the risks positioned in regions 201, 202 or 203 may receivethe classification of “priority risks” and then have appropriateresponse plans defined in step 130. Similarly, the risks positioned inthe other regions 204-206 may receive a classification of “risks underobservation”, and remain under a regular monitoring for verification ofany possible change in their status to “priority risks”. While thepresent discussion describes the prioritization matrix 200 as havingnine defined regions classified into six categories for ease ofdiscussion, it should be appreciated that any numbers of categories andcategorization criteria may be defined as desired by a user.

Either or both of the impact axis 210 and occurrence probability axes210 utilized to delimitate regions of the prioritization matrix 200 canhave their position changed according to the project's profile. Forexample, in more conservative projects with greater risk aversion, theprioritization matrix 200 may be adapted to increase the scope of risksto be examined with greater scrutiny, such as enlarging the scope ofregions 201-203 to increase the area considered for “priority risks”.

Returning now to FIG. 1A, the next step in the risk management process100 is to plan response to the identified risks in step 130 using knowntechniques. Typically, there are limited resources in a projectenvironment, so the risks will need to be prioritized, with greaterresources being allocated to certain risks. After the risks areidentified in step 110 and qualified in step 120, it is possible toobtain a list of the project's priority risks and, with that, toconcentrate the mitigation efforts in step 130 in the certain events andto facilitate the managers' decision making process. For example,resources may be allocated to risks having expected results (e.g., theprobability of occurrence multiplied by the calculated cost impact fromoccurrence of the risk). As described above, the risks may be optionallycategorized in step 125, such as positioning the various risks into theprioritization matrix 200, and the project's risks may be prioritizedaccording to the categorization.

Various problems may arise in the ranking/classification of the risks.With excessive risk aversion, too many risks are selected and thelimited project resources may be stretched too thin and causingimportant risks to receive insufficient attention. Another problem thatmay arise in risk classification 120 is that the expected cost impactsproduced in step 123 may not fully capture the effects of the risks tothe project since the cost effects may occur over different timeperiods.

Referring now to FIG. 3, embodiments of the present invention addressthese and other concerns through a semi-quantitative risk analysismethodology 300 that allows the comparison of all project risks from thesame standpoint, without any distortions or partial analyses. Also,through the use of this methodology it is possible to evidence the mainimpacts of a risk in a clearer manner.

The semi-quantitative risk analysis methodology 300 first defines aproject's project cash flow, namely its Net Present Value (NPV) atdifferent times, in step 310. The NPV is one of the main indicators usedby the market to evaluate the economic feasibility of a project. Netpresent value (or NPV) is a standard method in finance of capitalbudgeting, i.e., the planning of long-term investments. Using the NPVmethod a potential investment project should be undertaken if thepresent value of all cash inflows minus the present value of all cashoutflows (which equals the net present value) is greater than zero. Akey input into this process is the interest rate or “discount rate”which is used to discount future cash flows to their present values. Ifthe discount rate is equal to the shareholder's required rate of return,any NPV>0 means that the required return has been exceeded. Thusmanagers should undertake all projects that have an NPV>0, or if twoprojects are mutually exclusive, they should choose the one with thehighest positive NPV.

For example, suppose that X corporation must decide whether to introducea new product line. The new product will have startup costs, operationalcosts, and incoming cash flows over six years. This project will have animmediate (t=0) cash outflow of $100,000 (which might include machinery,and employee training costs). Other cash outflows for years 1-6 areexpected to be $5,000 per year. Cash inflows are expected to be $30,000per year for years 1-6. All cash flows are after-tax, and there are nocash flows expected after year 6. The required rate of return is 10%.The present value (PV) can be calculated for each year:T=0−$100,000/1.10^0=−$100,000 PV.T=1($30,000−$5,000)/1.10^1=$22,727 PV.T=2($30,000−$5,000)/1.10^2=$20,661 PV.T=3($30,000−$5,000)/1.10^3=$18,783 PV.T=4($30,000−$5,000)/1.10^4=$17,075 PV.T=5($30,000−$5,000)/1.10^5=$15,523 PV.T=6($30,000−$5,000)/1.10^6=$14,112 PV.

The sum of all these present values is the net present value, whichequals $8,882. Since the NPV is greater than zero, the corporationshould invest in the project. More realistic problems would need toconsider other factors, generally including the calculation of taxes,uneven cash flows, and salvage values, as well as other risks as definedbelow.

Net Present Value can thus be calculated by the following formula, wheret is the amount of time (usually in years) that cash has been investedin the project, N the total length of the project (in this case, fiveyears), i the cost of capital and C the cash flow at that point in time.

$\begin{matrix}{{NPV} = {\sum\limits_{t = 0}^{N}\frac{C_{t}}{\left( {1 + i} \right)^{t}}}} & \left( {{Eq}.\mspace{14mu} 1} \right)\end{matrix}$

The above example is based on a constant rate being used for futureinterest rate predictions and works very well for small amounts of moneyor short time horizons. Any calculations which involve large amounts orprotracted time spans will use a yield curve to give different rates forthe various time points on the calculation. So, the rate for 1 year maybe the 10%—the (money market) rate while the rate for 2 years may be 11%and that for 3 years 11.5%, and so on.

Referring now to FIG. 4A, a project may be characterized in step 310 bya project cash flow 400, representing the project's NPV 420 at a time410. It should be appreciated that a project cash flow 400 may havedrastically different characteristics according to the specific natureand features of the project, and that the particular exemplary projectcash flow 400 depicted in FIG. 4A is merely for illustration.

The depicted exemplary project cash flow 400 reflects a period ofinvestment 430, or capital expenditure (CAPEX), when the project isinitially unprofitable. For example, when a project typically requiresinitial capital and personal investment before the project can beimplemented to realize any positive returns. Once the project is up andrunning, the project typically has a period of positive net income 440(where income is projected revenue minus expenses). The net income 440is initially high due to high expected revenues as new projects tend tooffer desirable benefits and due to low operational costs (OPEX). Astime goes by, the project will become less profitable as initialbenefits are exploited and the maintenance costs increase as equipmentwears out and replacement employees need to be trained, and as the timevalue of money used to discount the returns increases over long periods.Scheduling delays, while they may not effect the project cash flow 400,may effect the timing of the project cash flow 400.

Thus, a risk may have an impact on CAPEX, on OPEX, and/or on theproject's expected revenues, so an embodiment of the present inventionprovides a improved risk comparison by allowing the comparison ofdifferent risks according to expected impact on NPV, including thetiming of the impact to NPV. Returning to FIG. 3, the semi-quantitativerisk analysis method 300 thus continues with identifying CAPEX impactsin step 320, identifying OPEX impacts in step 330, identifying revenueimpacts in step 340, and identifying time frame impacts in step 350. Asdescribed in greater detail below, in order to obtain the sum of theimpacts of a risk, step 320-340 entails expressing the impacts of riskin a common metric, namely the impact of the risk on the project's NPV.The NPV is one of the main indicators used by the market to evaluate theeconomic feasibility of a project. By means of economic studies andsensibility analyses it has been possible to calculate the conversionfactors related to these and other parameters that are reflected in theproject's NPV. With that, it is possible to estimate the actual impactof each risk and calculate how the project's NPV will be affected,should the risk become real. The methods utilized for estimating theparameters of the impact on a project's CAPEX in step 320, OPEX in step330, revenue in step 340 and time frame in step 350 are based on theanalysis of the curve estimated for project cash flow 400.

In step 360, the risks may be evaluated according to their impacts onNPV and cash flow as determined in step 320-350. With all the risksqualified according to their impacts on the CAPEX, OPEX, revenue timeframe and other factors, it is possible to calculate the severity ofeach risk by means of the summing up of its impacts on the project'sNPV. With that, the prioritization matrix 200 may be generated throughthe utilization of the impact values on the NPV as the measure forseverity 210, making it possible to obtain the list of priority risks ofthe project with a reliability level much superior to that obtained whenutilizing traditional methods, such as merely evaluating cost impacts.

Turning now to FIG. 4B, the first adjusted project cash flow 400′reflects the increased CAPEX costs 430′. The scale of impact on theCAPEX represents the estimate of additional investment in the projectshould the risk become real, i.e., the impact on CAPEX represents asingle disbursement for the execution of the tasks necessary for thecontaining or correction of the situation generated by the risk. Therisks with impact on the CAPEX would be those that, when concretized,would increase the investment amount necessary for the execution of theproject, thus reducing the project's NPV.

As explained above, net income 440 in the project cash flow 400 iscapital revenues minus OPEX. Thus, increased OPEX will decrease netincome 440. Turning now to FIG. 4C, the second adjusted cash flow 400″may reflect an increase in OPEX and represents an estimate of theexpenditures that will be added to the project's annual operationalcosts if the risk become real. It can be seen that increases in OPEX maydecrease projected cash flow 400″ throughout a wide time period.

Likewise, the second project cash flow 400″ in FIG. 4C reflectingdecrease NPV may be caused through decreased capital revenues. Theimpact on the revenue represents the estimated reduction in theproject's expected revenue should the risk occur. This impact has theeffect of changing the revenue in the cash flow of the whole project.These types of risks, for example, effect prices or otherwise limitproduction and/or volumes

Turning now to FIG. 4D, a third adjusted project cash flow 400′″reflects a risks impact on the Time Frame. There is the impact on thetime frame, which represents a delay (from T₀ to T₁) in the beginning ofthe project's operation and which causes the dislocation of theproject's cash flow through time, without affecting its dimensions.While not depicted, the third adjusted project cash flow 400′″ willlikely reflect a decrease in NPV since the time value of money factorused to discount money gains, as described above, increases over time,thereby reducing the same revenue if received at a later date. Riskswith an impact on the time frame are those that, should they becomereal, would affect, for example, the date of the first production.

As depicted in FIG. 5, embodiments of the present invention provide acomputerized risk management tool 500. In order to support the wholerisk management process, the tool 500 integrates the identification,qualification and development of the responses, as well as their controland follow-up. As described below, the tool 500 implements thesemi-quantitative risk analysis methodology 100, being able to registerthe probability of an occurrence and the estimated impacts of each risk,a well as calculate the impact on the project's NPV, automaticallyinforming the priority of each risk. Additionally, the tool provides awork flow that comprises the whole process, will all those involvedbeing constantly informed on the evolution of the situation of the risksand their response plans. Another important benefit deriving from theutilization of the semi-quantitative analysis and that has also beenincorporated by the tool in question is the utilization of more reliableindicators to evaluate the risk management effectiveness and measure thebenefits achieved.

Returning to FIG. 5, the risk management tool 500 may be asoftware-driven application including modules that automatically performeach of the steps of the risk management method 100. Specifically, therisk management system 500 may have modules 510, 520, 530, and 540 forperforming the functions of, respectively, risk identification,definition of the risk impacts, development of the correspondingresponses, and monitoring and control of project risks. For instance, inone implementation, the risk management tool 500 is a spreadsheetapplication (such as an application written in VisualBasic® for Excel®,both marketed by Microsoft Corp. of Redman, Wash.) that receives variousfinancial data and user inputs, and uses these inputs to calculate theproject cash flow as needed for the semi-quantitative risk assessmentusing stored project data 501.

In another embodiment, the risk management tool 500 includes a userinput module 550 that allows a user to edit or specify the storedproject data 501. For example, the user input module 550 may comprise aserved webpage form containing blank fields to allow the user to specifyvarious aspects of the project and its risks, along with knowntechnology to receive and store the user's inputs. As depicted in FIG.6, to assist the user, an input form 600 may contain various drop downmenu and examples, along with other known technology to allow the userto automatically specify data, along with the ability to access and usestored data. The tool 500 may further visually display results, such asthe above-described risk prioritization matrix depicted in FIG. 2,through the user input module 550.

The risk management tool 500 may further includes data collection module560 that automatically collects relevant external project data 502. Forexample, the data collection module 560 may be programmed to collectcertain relevant external project data 502, such as project or economicstatus data, in real time so that the risks identification, analysis,response, and monitoring and control may be performed and repeated usingthe recent data. For example, interest rate changes to be used to updatenet present value calculations. For instance, the data collection module560 may include software application such as data mining applications inExtended Meta Language (XML), not depicted, that automatically searchfor and return relevant information from the external data repository502.

Optionally, the risk management tool 500 may be connected to the userinput 550 and the data collection module remotely via a distributednetwork such as the Internet. In this embodiment, the risk managementtool 500 may be an application present on an Internet server and isaccessible to various users and applications via the distributednetwork.

In one embodiment, the tool 500 automatically processes a series ofindicators, the main one being the quantification of the total benefitfor the project deriving from the adoption of the risk managementprocess. This indicator is calculated by subtracting the avoided risks'total impact figure from the expected risks' total impact figure.

Despite being well known among project managers, the risk managementdiscipline can present results with a low reliability if the qualitativeanalysis process is executed in a simplified manner. The application ofthe semi-quantitative risk analysis methodology allows the projectmanager, with a little additional effort, to elevate the quality of thecollected information, the main success factor for the good managementof risks in a project, thus preventing any deviations or partialresults, speeding up the decision making process and contributing forthe managers and other personnel responsible for the control andmonitoring of the process to direct their efforts to those risks thatare really critical to the project's success.

Conclusion

The foregoing description of the preferred embodiments of the inventionhas been presented for the purposes of illustration and description. Itis not intended to be exhaustive or to limit the invention to theprecise form disclosed. Many modifications and variations are possiblein light of the above teaching. For instance, the method of the presentinvention may be modified as needed to incorporate new communicationnetworks and protocols as they are developed. It is intended that thescope of the invention be limited not by this detailed description, butrather by the claims appended hereto. The above specification, examplesand data provide a complete description of the manufacture and use ofthe composition of the invention. Since many embodiments of theinvention can be made without departing from the spirit and scope of theinvention, the invention resides in the claims hereinafter appended.

1. A computer-implemented project risk assessment method comprising: acomputer receiving and storing project data, wherein said project datadefines the net present value (NPV) of a project over a time period;said computer identifying a plurality of project risks using saidproject data; said computer, for each of the project risks, defining animpact to the NPV and a probability of occurrence; said computercontinuously prioritizing each of the project risks in real-timeaccording to the risks' respective impacts to NPV and probability ofoccurrence; said computer continuously selecting the project risk withthe greatest priority in real-time; said computer planning a response tothe selected project risks; said computer monitoring said project andsaid response in real time; said computer generating: an avoided riskstotal impact figure based on the risks avoided by adopting the response;an expected risks total impact figure based on the risks expected byadopting the response; and a total benefit for the project, the totalbenefit being calculated by subtracting the avoided risks total impactfigure from the expected risks total impact figure; and said computergenerating a risk prioritization matrix and categorizing the risk withina region of the risk prioritization matrix based on the NPV and theprobability of occurrence, wherein the response is based on the regionwhere the risk is categorized.
 2. The computer-implemented project riskassessment method of claim 1, wherein the step of defining an impact tothe NPV and a probability of occurrence for each of the risks comprisesthe computer classifying the impact to the NPV and the computerclassifying a probability of occurrence.
 3. The computer-implementedproject risk assessment method of claim 1, wherein the step of thecomputer selecting one or more of the project risks comprisesclassifying the risks into a plurality of categories according to therisks' respective impacts to NPV and probability of occurrence, andselecting any of the risks occurring in one of the categories.
 4. Thecomputer-implemented project risk assessment method of claim 1, whereinthe step of defining an impact to the NPV and a probability ofoccurrence for each of the risks comprises the computer creating a riskprioritization matrix that graphically displays the impacts andoccurrence probabilities for the risks.
 5. The computer-implementedproject risk assessment method of claim 1, wherein the step of definingan impact to the NPV and a probability of occurrence for each of therisks comprises: defining a project cash flow; and determining the riskseffects on the project cash flow.
 6. The computer-implemented projectrisk assessment method of claim 5, wherein the step of defining animpact to the NPV and a probability of occurrence for each of the risksfurther comprises identifying CAPEX impacts, OPEX impacts, revenueimpacts, and time frame impacts for each of the risks.
 7. Acomputer-implemented project risk assessment system comprising: meansfor receiving and storing project data, wherein said project datadefines the net present value (NPV) of a project over time period; meansfor identifying a plurality of project risks using said project data;means for defining an impact to the NPV and a probability of occurrencefor each of the project risks; means for continuously prioritizing eachof the project risks in real-time according to the risks' respectiveimpacts to NPV and probability of occurrence; means for continuouslyselecting the project risk with the greatest priority in real-time meansfor planning a response to the selected project risks; means formonitoring said project and said response in real time; means forgenerating: an avoided risks total impact figure based on the risksavoided by adopting the response; an expected risks total impact figurebased on the risks expected by adopting the response; and a totalbenefit for the project, the total benefit being calculated bysubtracting the avoided risks total impact figure from the expectedrisks total impact figure; and means for generating a riskprioritization matrix and categorizing the risk within a region of therisk prioritization matrix based on the NPV and the probability ofoccurrence, wherein the response is based on the region where the riskis categorized.
 8. The computer-implemented project risk assessmentsystem of claim 7, wherein the means of defining an impact to the NPVand a probability of occurrence for each of the risks comprises themeans for classifying the impact to the NPV and means for classifying aprobability of occurrence.
 9. The computer-implemented project riskassessment system of claim 7, wherein the means for selecting one ormore of the project risks comprises means for classifying the risks intoa plurality of categories according to the risks' respective impacts toNPV and probability of occurrence; and means for selecting any of therisks occurring in one of the categories.
 10. The computer-implementedproject risk assessment system of claim 7, wherein the means fordefining an impact to the NPV and a probability of occurrence for eachof the risks comprises the computer creating a risk prioritizationmatrix that graphically displays the impacts and occurrenceprobabilities for the risks.
 11. The computer-implemented project riskassessment system of claim 7, wherein the means for defining an impactto the NPV and a probability of occurrence for each of the riskscomprises: means for defining a project cash flow; and means fordetermining the risks effects on the project cash flow.
 12. Thecomputer-implemented project risk assessment system of claim 11, whereinthe means for defining an impact to the NPV and a probability ofoccurrence for each of the risks further comprises means for identifyingCAPEX impacts, OPEX impacts, revenue impacts, and time frame impacts foreach of the risks.
 13. A computer recordable medium storing a program ofinstruction for implementing a project risk assessment method, whereinthe method comprises: receiving and storing project data, wherein saidproject data defines the net present value (NPV) of a project over atime period; identifying a plurality of project risks using said projectdata; for each of the project risks, defining an impact to the NPV and aprobability of occurrence; continuously prioritizing the project risksin real-time according to the risks' respective impacts to NPV andprobability of occurrence; continuously selecting the project risk withthe greatest priority in real-time; planning a response to the selectedproject risks; monitoring said project and said response; generating: anavoided risks total impact figure based on the risks avoided by adoptingthe response; an expected risks total impact figure based on the risksexpected by adopting the response; and a total benefit for the project,the total benefit being calculated by subtracting the avoided riskstotal impact figure from the expected risks total impact figure; andgenerating a risk prioritization matrix and categorizing the risk withina region of the risk prioritization matrix based on the NPV and theprobability of occurrence, wherein the response is based on the regionwhere the risk is categorized.
 14. The computer recordable mediumstoring a program of instruction for implementing a project riskassessment method of claim 13, wherein the step of defining an impact tothe NPV and a probability of occurrence for each of the risks comprisesclassifying the impact to the NPV and classifying a probability ofoccurrence.
 15. The computer recordable medium storing a program ofinstruction for implementing a project risk assessment method of claim13, wherein the step of selecting one or more of the project riskscomprises classifying the risks into a plurality of categories accordingto the risks' respective impacts to NPV and probability of occurrence,and selecting any of the risks occurring in one of the categories.
 16. Acomputer recordable medium storing a program of instruction forimplementing a project risk assessment method of claim 13, wherein thestep of defining an impact to the NPV and a probability of occurrencefor each of the risks comprises creating a risk prioritization matrixthat graphically displays the impacts and occurrence probabilities forthe risks.
 17. The computer recordable medium storing a program ofinstruction for implementing a project risk assessment method of claim13, wherein the step of defining an impact to the NPV and a probabilityof occurrence for each of the risks comprises defining a project cashflow; and determining the risks effects on the project cash flow. 18.The computer recordable medium storing a program of instruction forimplementing a project risk assessment method of claim 17, wherein thestep of defining an impact to the NPV and a probability of occurrencefor each of the risks further comprises identifying CAPEX impacts, OPEXimpacts, revenue impacts, and time frame impacts for each of the risks.19. The computer-implemented project risk assessment method of claim 1,wherein planning the response comprises planning mitigation actions,establishing goals, and defining responsibility for the project risksand the mitigation actions.
 20. The computer-implemented projected riskassessment method of claim 1, further comprising: said computer updatingthe project data and storing the updated project data based on saidcomputer monitoring; and said computer identifying an updated risk usingsaid updated project data.
 21. The computer-implemented project riskassessment method of claim 1, wherein said computer defines theprobability of occurrence based on a statistical model.
 22. Thecomputer-implemented project risk assessment method of claim 1, whereinplanning the response to the selected project risk comprises allocatingan amount of resources based on the project risk, the amount ofresources being greater for project risks with higher priorities.